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IRM Energy IPO entails to raise ₹545.40 Cr and the issue comprises entirely a fresh issue of shares. IRM Energy is one of the leading players in city gas distribution segment in three states catering to industrial, commercial, domestic, and automobile customers

About IRM Energy

• The company has presence in three states i.e. Banaskantha District in Gujarat, Fatehgarh Sahib in Punjab, and Diu & Gir-Somnath in the Union Territory of Daman & Diu and Gujarat.
• The Company distributes CNG for use in motor vehicles and PNG for use by domestic households as well as for commercial and industrial units.
• As of March 31, 2023, its supply network across all GAs consists of over 3,665 inch-kms of pipelines, including approximately 3,000 inch-kms of MDPE pipelines, and 665 inch-kms of steel pipelines.
• AAs of June 30, 2023,it had 184 Industrial customers, 269 Commercial customers, and 52454 Domestic customers. The company has also established a strategically located network of 62 CNG retail outlets.
• IRM Energy had an established a network of 69 CNG filling stations, comprising 2 CNG stations owned and operated by the company, 36 CNG stations owned and operated by dealers, and 31 CNG stations owned and operated by oil marketing companies.
• As of June 30, 2023, it had 226 employees on its payroll.

Geographical Areas (GA’s) of IRM Energy

Financials: IRM Energy IPO

Anchor: IRM Energy IPO

IRM Energy IPO: Salient Points

• IRM Energy IPO constitutes 26.30 % of the post-IPO paid-up capital of the company.
• Promoters hold 67.94% stake in the company, with privately held Cadila Pharmaceuticals (49.50 %), and the remaining shares being held by IRM Trust through its managing trustee Rajiv Indravadan Modi.
• Natural gas demand from the CGD sector to log at 15-16% CAGR between Fiscal 2022 and Fiscal 2030, to 103-107 MMSCMD.
•  Geographical Areas (GA’s) are alloted by PNGRB after bidding.
• The company intends to utilize from the net proceeds, Rs. 307.26 cr. for capex on CGD network in Namakkal and Tiruchirappalli in Tamil Nadu, Rs. 135.00 cr. for repayment/prepayment of certain borrowings, and rest for general corporate purposes.
• Shizuoka Gas Co. Ltd. of Japan acquired equity shares in two tranches at a price of Rs. 425 and Rs. 550 per share. Shizuoka Gas Co. Ltd (ShizGas) is the 4th largest gas company in Japan by natural gas sales volume in 2021 and with vast experience in the CGD sector. Sizuoka Gas Company holds 2.94% stake in the company.
• It has received the authorization for the GA of Namakkal & Tiruchirappalli in the eleventh round of bidding conducted by PNGRB in January 2022 for creating the infrastructure of 1,450 inch kms gas pipeline (consisting of steel pipelines), 17,74,000 PNG domestic connections and 290 CNG stations in Namakkal & Tiruchirappalli. This area is near to BHEL plant for which company is setting up PNG connection. This region(GA or Geographical Area) will start contributing to revenue from Q2FY24,
• The other Geographical Area (GA) in which company operates is Fatehgarh Sahib in Punjab which houses the famed Gobingarh Mandui cluster of industries. The company has been able to convert most of these high power consumers to PNG. Ban by the National Green Tribunal the usage of polluting fuels, primarily in the Mandi Gobindgarh, Fatehgarh Sahib has spurred overall growth in volumes from the industrial segment. On account of this, their industrial customers have grown from 56 to 170 from Fiscal 2021 to Fiscal 2023.
• It operation in Banaskanhta district of Gujarat are are more inclined towards use of CNG.
• Company suffered a pressure on margins for FY23 following surge in petroleum product prices on account of Ukraine-Russia imbroglio.
• The Company has laid an optimal capacity steel pipeline network from the cross-country pipeline available in all their GAs, to cater to both CNG and PNG demands in the respective GAs.
• They aim to reduce their operational costs through setting up independent captive solar power plant, as power costs is an operational expenditure for CGD companies.
• They have signed a MoU with Mindra EV Private Limited on August 24, 2022 for setting up an EV charging infrastructure at DODO Stations and COCO Stations for a period of five years. This enables to further their vision of transitioning towards becoming an energy oriented company.
• They have also been granted network exclusivity rights of 25 years for infrastructure creation for all their GAs, including laying down of pipelines and CNG distribution network within their GAs pursuant to the authorization received.
• The Company’s mid to long-term gas sale and purchase agreements (“GSPAs”) with gas suppliers such as GAIL and RIL enable them to source gas at a reasonable cost. Major sourcing is from RIL.
• Peers on broad parameters

• The volume of gas supplied has increased from 45 mmscm to 196 mmscm in the period FY23 to FY20 ( almost 4x)
• Company expects 37% volume CGAR till FY27E.
• Bidding for new GAs (Geographical Areas)
• Debt equity ratio will go down to .2 , 165 crores debt after the IPO proceeds.
• IRM Energy is an emerging player in City Gas Distribution segment. It has made its presence in three states in regions where good opportunities are envisaged.
• The Company has backing of Cadila Pharma which has a good reputation as group.
• IRM Energy IPO is coming at a PE ratio of 33x(fy23 earnings), 19x ( FY24 annualized on Q1FY24 results).
• Response to anchor issue is average only.
• I am likely to apply in the IRM Energy IPO even as it does not look very assuring from listing gains perspective. It looks good from a longer perspective but its valuations are quite rich and are almost fully streched. Its Namakkal and Tiruchirappalli GA seems to hold good promise.
• GMP as reported on social media has been around Rs. 50-55.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Do check the data from company’s RHP and exchanges before making any decision. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.